Fixed manufacturing support costs are $800,000, and fixed selling and administrative costs are $400,000. In addition, the company pays its sales representatives a commission equal to 10% of the price of each racket sold.

Required
a. If the sales price of deluxe rackets decreases 10%, its sales are expected to increase 30%, but sales of standard rackets are expected to decreases 5%, as some potential buyers of standard rackets will upgrade to deluxe rackets. What will be the impact of this decision on Tenneco's profits?

b. Suppose that Tenneco decides to increase its advertising by $50,000 instead of cutting the price of deluxe rackets. This is expected to increase sales of all three models by 2% each. In this decision advisable?

c. The incentive created by sales commissions has led Tenneco's sales force to push the higher-priced rackets more than the lower-priced ones. Is this in the best interest of the company?

Solution Preview

A) If Tenneco goes with the decision its profit will reduce by $44,000.

B) If Tenneco goes with this ...

Solution Summary

The solution perform the What-if-analysis for Tenneco Inc., in excel sheet.

$2.19

Purchase Solution

$2.19

Solution provided by:

Education

BComm, Pune University, INdia

MBA, Cardiff University. UK

Recent Feedback

"Thanks Jitendra Lodha! I do have some questions on the solutions so provided.
What then can will do with the $36,00 prepaid for three-years rental lease that was paid on March 1, 20X2 FOR Question 1?
For question 4, What are the effect of the purchases, freight-in and out, purchase discounts, and the inventory amounts in the unadjusted trial balance on the final adjustment you arrived at?
"

"We got different answers and both of our answers were wrong on 2 of the problems. Once the solutions are posted for this homework, I will figure out where I missed out. Thanks for the help. "

"Not as much detail to follow, maybe next time include a brief explanation to follow. I was able to follow your formulas, thanks. "

"Thank you so much! I really appreciate it. I hope to work with you again."